Christopher Harding v Digital Skies Group Pty Ltd T/A Android Enjoyed or CameraSky

[2017] FWC 2226

[2017] FWC 2226

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

Christopher Harding
v
Digital Skies Group Pty Ltd T/A Android Enjoyed or CameraSky
(U2016/12141)

COMMISSIONER JOHNS SYDNEY, 20 APRIL 2017

Application for Relief of Unfair Dismissal – high income threshold.

Introduction

[1] On 5 October 2016 Christopher Harding (applicant) made an application to the Fair Work Commission (Commission) pursuant to section 394 of the Fair Work Act 2009 (FW Act) for a remedy in respect of his dismissal by Digital Skies Group Pty Ltd (Employer/respondent).

[2] On 14 October 2016 the Employer filed a response to the unfair dismissal application. It objected to the Commission hearing and determining the application on the basis that, it submitted, the applicant earned more than the high income threshold (HIT) and, consequently, was not protected from unfair dismissal. The respondent also asserted that the dismissal was consistent with the Small Business Fair Dismissal Code. However, the matter proceeded on the basis that the HIT objection would be dealt with first.

The jurisdictional hearing

[3] At the jurisdictional hearing:

a) the applicant represented himself and gave evidence on his own behalf, and
b) the respondent was represented by Mr Yuen Ho Wong a shareholder of the respondent. Mr Wong was the only person to give evidence on behalf of the respondent.

Submissions and evidence

[4] In addition to the evidence received and submissions made at the jurisdictional hearing the parties had, prior to the hearing, filed the following material which the Commission, as presently constituted, has had regard to:

a) Form F2 – Unfair Dismissal Application,

b) Statement by the applicant dated 10 November 2016 (and its annexures) (Exhibit A1),

c) Supplementary witness statement of the applicant dated 28 December 2016 (Exhibit A2),

d) Letter of advice from Coleman Greig Lawyers (Exhibit A3),

e) Form F3 – Employer’s Response,

f) Respondent’s Submissions dated 21 December 2016 (and its annexures) (Exhibit R1),

g) Email from the applicant to Mr Wong dated 17 October 2016 (Exhibit R2),

h) An email from the company’s lawyers dated 12 October 2016 (Exhibit R3), and

i) the Constitution of the respondent (Exhibit R4).

Background

[5] The following matters were either agreed between the parties or not otherwise substantially contested:

a) The respondent is a small business. The applicant was its only employee.

b) The applicant was, up until 27 September 2016, also the sole director of the respondent.

c) At the time of the dismissal, the owners of (shareholders in) the respondent were:

i. Sze Lok Chan (25%),

ii. Ching Man Fong (25%),

iii. Mr Wong (25%), and

iv. the applicant (25%).

a) The Constitution of the respondent provides that:

i. The business of the company will be managed by the Directors who may exercise all such powers as are not required to be exercised by the company in general meeting (Rule 14.1(a)).

Noting that the applicant was, until 27 September 2016 the sole director, he was entitled to manage the business of the company (subject to Corporations Act 2001).

ii. The Directors may meet together for the dispatch of business or adjourn and otherwise regulate their meetings as they think fit (Rule 15.1(a)).

iii. Where there is one Director, that Director may pass a resolution of Directors by recording the resolution and signing the record (Rule 15.4).

iv. Directors can have contracts with the Company (Rule 15.6(a)).

v. Resolutions can be passed by Directors (Rule 15.11).

vi. The Directors may appoint a Managing Director “on such terms as they think fit” (Rule 16.1(a)).

vii. The appointment of any Managing Director will cease if they cease to be a Director (Rule 16.1(b)).

viii. The Directors can confer powers on the Managing Director (Rule 16.3).

ix. The Directors must keep minutes of all resolutions (Rule 20.2).

a) On 22 November 2013 the applicant began working for the respondent as its Managing Director.

b) On that day the applicant for himself as the employee, and on behalf of the respondent purported to enter into an employment agreement (Employment Agreement). It provided for an annual remuneration of $140,000. However, the Employment Agreement provided for a deferral of the salary in the first year and the ability for the parties to agree on additional deferrals in subsequent years. The applicant had a contractual right to call upon the respondent to pay any deferred salary. The contract was witnessed by a long-term friend of the applicant.

c) There is no documentary evidence that the company resolved to:

i. appoint the applicant as its Managing Director, or

ii. enter into the Employment Agreement.

a) The Employment Agreement also provided that the applicant must:

i. “act honestly and always in the best interest of the [respondent]” (my emphasis).

ii. “avoid conflicts between [his] interest and those of the [respondent].”

a) It is evident that the cash flow/income of the respondent could not support the payment of a $140,000 salary. Consequently, large parts of the salary were said to be deferred.

b) In the 2014 financial year the applicant was paid a salary of $34,047.49. The difference between that amount and $140,000 was said to be treated as deferred salary.

c) In the 2015 financial year the applicant was paid a salary of $56,000. The difference between that amount and $140,000 was said to be treated as deferred salary.

d) On 11 December 2015 the applicant received legal advice about the potential for conflicts of interest in his capacity as a sole director and an employee of the respondent.

e) On 18 February 2016 the applicant for himself as the employee, and on behalf of the respondent purported to enter into an amendment to the Employment Agreement (Amendment).

The Amendment purported to amend the annual remuneration from $140,000 to $120,000. It purported to back-date the amendment to the commencement of the employment relationship on 22 November 2013.

All the other terms of the Employment Agreement remained the same, including those terms relating to deferment of payments. However, the Amendment purported to adjust the amount of the deferred salary so that it was now referable to the difference between amounts actually paid and $120,000.

The Amendment was witnessed by a long-term friend of the applicant.

There is no documentary evidence that the company resolved to enter into the Amendment.

f) At the time it was entered into the Amendment was not disclosed to the other shareholders.

g) In the 2016 financial year the applicant was paid a salary of $55,999. The difference between that amount and the contracted salary was said to be treated as deferred salary.

h) On 18 August 2016 there was a general meeting of the company. The applicant did not disclose the Amendment.

i) On 27 August 2016 there was another general meeting of the company. The applicant did not disclose the Amendment.

j) On 27 September 2016 the applicant was removed as a Director of the respondent. Hung Pam Lee became the sole director from that day.

k) By reason of him ceasing to be a director of the respondent, on 27 September 2016, the applicant was notified of the termination of his employment and the dismissal became effective on that day.

l) In the financial year 2017 (i.e. July, August, September before the termination of his employment) the applicant was being paid $4,666.66 per month (i.e. $55,999 per annum). The difference between that amount and the contracted salary was said to be treated as deferred salary.

[6] The applicant submitted he was unfairly dismissed and seeks an Order that he be compensated.

Protection from Unfair Dismissal

[7] An order for reinstatement or compensation may only be issued where the Commission is satisfied the applicant was protected from unfair dismissal at the time of the dismissal.

[8] Section 382 of the FW Act sets out the circumstances that must exist for the applicant to be protected from unfair dismissal:

“382 When a person is protected from unfair dismissal
A person is protected from unfair dismissal at a time if, at that time:

(a) the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and
(b) one or more of the following apply:

(i) a modern award covers the person;
(ii) an enterprise agreement applies to the person in relation to the employment;
(iii) the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold.”

[9] There is no dispute, and the Commission, as presently constituted, is satisfied, the applicant:

a) completed the minimum employment period,
b) was not covered by a modern award, and
c) did not have an enterprise agreement apply to his employment.

[10] However, there was a dispute about whether the applicant’s annual rate of earnings were less than the HIT.

[11] The relevant HIT is $139,800.

[12] At the jurisdictional hearing:

a) the applicant submitted that he earned less than HIT. He said he earned $120,000 per annum.
b) the respondent submitted that the applicant earned more than the HIT. It said the applicant earned $140,000 per annum.

Statutory Framework

[13] Section 382 (b) of the FW Act provides that for a person to be protected from unfair dismissal one or more of the following must apply:

“(i) a modern award covers the person;
(ii) an enterprise agreement applies to the person in relation to the employment;
(iii) the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold.”

[14] In relation to earnings, s.332 of the FW Act provides that:

“(1) An employee’s earnings include:

(a) the employee’s wages; and
(b) amounts applied or dealt with in any way on the employee’s behalf or as the employee directs; and
(c) the agreed money value of non-monetary benefits; and
(d) amounts or benefits prescribed by the regulations.

(2) However, an employee’s earnings do not include the following:

(a) payments the amount of which cannot be determined in advance;
(b) reimbursements;
(c) contributions to a superannuation fund to the extent that they are contributions to which subsection (4) applies;
(d) amounts prescribed by the regulations.

Note: Some examples of payments covered by paragraph (a) are commissions, incentive-based payments and bonuses, and overtime (unless the overtime is guaranteed).
(3) Non-monetary benefits are benefits other than an entitlement to a payment of money:

(a) to which the employee is entitled in return for the performance of work; and
(b) for which a reasonable money value has been agreed by the employee and the employer;

but does not include a benefit prescribed by the regulations.
(4) This subsection applies to contributions that the employer makes to a superannuation fund to the extent that one or more of the following applies:

(a) the employer would have been liable to pay superannuation guarantee charge under the Superannuation Guarantee Charge Act 1992 in relation to the person if the amounts had not been so contributed;
(b) the employer is required to contribute to the fund for the employee’s benefit in relation to a defined benefit interest (within the meaning of section 292-175 of the Income Tax Assessment Act 1997) of the employee;
(c) the employer is required to contribute to the fund for the employee’s benefit under a law of the Commonwealth, a State or a Territory.”

[15] With regard to benefits other than the payment of money, regulation 3.05(6) provides:

“If:
(a) the person is entitled to receive, or has received, a benefit in accordance with an agreement between the person and the person’s employer; and
(b) the benefit is not an entitlement to a payment of money and is not a non-monetary benefit within the meaning of subsection 332 (3) of the Act; and
(c) FWA is satisfied, having regard to the circumstances, that:

(i) it should consider the benefit for the purpose of assessing whether the high income threshold applies to a person at the time of the dismissal; and
(ii) a reasonable money value of the benefit has not been agreed by the person and the employer; and
(iii) FWA can estimate a real or notional money value of the benefit;

the real or notional money value of the benefit estimated by FWA is an amount for subparagraph 382 (b) (iii) of the Act.”

Consideration

[16] During the jurisdictional hearing the manner in which the Employment Agreement and the Amendment came into existence were disputed by the respondent. Mr Wong complained that neither of the documents were disclosed to the shareholders.

[17] Consequently, the Commission, as presently constituted, asked Mr Harding about the minutes of the meetings of the sole director meetings that resolved to enter into the Employment Agreement and the Amendment (i.e. the decision to reduce the remuneration from $140,000 to $120,000). 1 Mr Harding said the minutes would "be in the company files".2

[18] Section 251A of the Corporations Act 2001 requires that:

“(1)  A company must keep minute books in which it records within 1 month:
...
(b)  proceedings and resolutions of directors' meetings (including meetings of a committee of directors)”

[19] On 4 April 2017 the Commission called on Mr Harding or the company to produce to the Commission the minute book of the company, especially the minutes of all proceedings and resolutions of directors' meetings when Mr Harding was the sole director of the respondent.

[20] On 11 April 2017 Mr Harding advised that he is unable to produce the minute book of the company because “the majority of the documents left in his possession by [the respondent] have been disposed of.”

[21] Absent the production of the minute book of the company it is difficult to verify whether the Employment Agreement and the Amendment were validly entered into. In any case, noting that the applicant was never actually paid either $140,000 or $120,000, it seems possible that both figures were a legal fiction.

[22] However, the issue became moot.

[23] This is because:

a) on 11 April 2017 the applicant advised the Commission that, for the purposes of his application for an unfair dismissal remedy he was willing to agree that his remuneration was the actual amount paid to him (i.e. $55,999), and
b) on 20 April 2017 the respondent also agreed that the applicant’s remuneration for the purposes of the present matter is $55,999.

[24] There being agreement that applicant’s earnings were $55,999 it necessarily follows that the applicant earned less than the HIT.

[25] Consequently, the Commission, as presently constituted, is satisfied the applicant was protected from unfair dismissal.

Conclusion

[26] The HIT jurisdictional objection is dismissed. An order to that effect will be issued with this decision.

[27] The matter will now be programmed for a hearing in relation to the second jurisdictional objection i.e. that the dismissal was consistent with the Small Business Fair Dismissal Code.

COMMISSIONER

Appearances:

Mr C Harding appeared for himself.

Mr Y Wong appeared for the respondent.

Hearing details:

Sydney,

2017

January 16

 1   PN124-137.

 2   PN133.

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